UK construction sector faces insolvencies due to rising material costs and cashflow issues, with small firms struggling

From Yahoo Finance: 2025-06-20 12:38:00

The UK construction sector saw 377 firms go insolvent in March 2025, the highest in a year. Most were subcontractors, with 87 electrical and plumbing firms affected. Overall, construction accounted for 17% of all insolvencies in England and Wales in the past year.

Small construction SMEs are struggling with rising material costs and cashflow issues. 72% cite material costs as a major drag on profitability, with 29% lacking sufficient cashflow. This has led to mounting bad debt and tightening margins, pushing more SMEs toward insolvency.

Despite challenges, 67% of construction SMEs expect sales to rise, but 60% doubt the Government’s Industrial Strategy will benefit them. The concern is that large firms will gain at the expense of small subcontractors and regional builders, deepening the divide in the sector.

Smaller construction firms face challenges with contractual complexity, with nearly half finding contracts difficult to understand. Limited bargaining power and fear of losing business lead many to accept unfavorable contract terms, exacerbating cashflow issues and financial risks.

Construction SMEs are finding it harder to secure external finance, with 51% reporting worsened access. Asset finance and leasing are becoming crucial alternatives, with plant and machinery finance showing resilience despite a short-term dip.

Confidence in the construction sector remains high, but access to finance must improve for SMEs to benefit from Government infrastructure targets. Simplifying contracts, improving finance access, and ensuring SMEs can compete are vital for the sector’s future growth and survival.



Read more at Yahoo Finance: Leasing lays the foundation as UK construction sector feels the strain